Organization, Basis of Presentation and Consolidation and Use of Estimates |
9 Months Ended |
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Sep. 30, 2021 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization, Basis of Presentation and Consolidation and Use of Estimates | Organization, Basis of Presentation and Consolidation and Use of Estimates Organization
HireRight GIS Group Holdings LLC (“HGGH”), was formed in July 2018 through the combination of two groups of companies: the HireRight Group and the GIS Group, each of which include a number of wholly-owned subsidiaries that conduct the Company’s business within the United States of America (the “U.S.”), as well as countries outside the U.S. Since July 2018 the combined group of companies and their subsidiaries have operated as a unified operating company providing screening and compliance services, predominantly under the HireRight brand.
On October 15, 2021, HGGH converted into a Delaware corporation and changed its name to HireRight Holdings Corporation (“HireRight” or the “Company”). In conjunction with the conversion, all of HGGH’s outstanding equity interests were converted into shares of common stock of HireRight Holdings Corporation. The foregoing conversion and related transactions are referred to herein as the “Corporate Conversion”. The Corporate Conversion did not affect the assets and liabilities of HGGH, which became the assets and liabilities of HireRight Holdings Corporation.
On October 18, 2021, HireRight Holdings Corporation effected a one-for-15.969236 reverse stock split (the “Stock Split”). The accompanying condensed consolidated financial statements give retroactive effect to the Stock Split for all periods presented.
On November 2, 2021, the Company completed its initial public offering (“IPO”), in which the Company sold 22,222,222 shares of its common stock, $0.001 par value per share at an offering price of $19.00 per share. The Company received net proceeds of $393.5 million, after deducting underwriting discounts and commissions of $23.2 million and other offering costs payable by the Company of approximately $5.5 million. The Company granted the underwriters an option for a period of 30 days to purchase up to an additional 3,333,333 shares of common stock at $19.00 per share less discounts and commissions. The underwriters have until November 27, 2021 to exercise their option to purchase additional shares.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiaries. The unaudited condensed consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States ("GAAP") and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting.
Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s audited consolidated financial statements for the year ended December 31, 2020, included in the Company’s prospectus, dated October 28, 2021, filed with the SEC in accordance with Rule 424(b) of the Securities Act on November 1, 2021 (the “Prospectus”). The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP.
In the opinion of management, all adjustments, consisting of normal recurring items, necessary for the fair statement of the condensed consolidated financial statements have been included. All intercompany balances and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared on a consistent basis with the accounting policies described in Note 1 of the notes to the audited consolidated financial statements for the year ended December 31, 2020, included in the Prospectus. Certain reclassifications have been made to prior year presentation to conform to current year presentation.
Accounting Policies
The Company’s significant accounting policies are discussed in Note 1 of the notes to the audited consolidated financial statements for the year ended December 31, 2020, included in the Prospectus. There have been no significant changes to these policies which have had a material impact on the Company’s unaudited condensed consolidated financial statements during the three and nine months ended September 30, 2021, except as noted below.
Deferred Offering Costs
Deferred offering costs consist of costs incurred in connection with the sale of the Company’s common stock in its IPO, including certain legal, accounting, and other IPO-related costs. At the completion of the IPO, the deferred offering costs will be recorded as a reduction from the proceeds of the offering. As of September 30, 2021 and December 31, 2020, $4.2 million and zero, respectively, of deferred offering costs had been recorded within prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets.
Use of Estimates
Preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates, judgments and assumptions that affect the amounts reported and disclosed in the financial statements. The Company believes that the estimates, judgments, and assumptions used to determine certain amounts that affect the financial statements are reasonable based upon information available at the time they are made. The Company uses such estimates, judgments and assumptions when accounting for items and matters such as, but not limited to, the allowance for doubtful accounts, customer rebates, impairment assessments and charges, recoverability of long-lived assets, deferred tax assets, uncertain tax positions, income tax expense, derivative instruments, fair value of debt, equity-based compensation expense, useful lives assigned to long-lived assets, and the stand-alone selling price of performance obligations for revenue recognition purposes. Results and outcomes could differ materially from these estimates, judgments and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the potential impact of the coronavirus (“COVID-19”).
Correction of Immaterial Misstatement
In connection with the preparation of its condensed consolidated financial statements for the quarter ended September 30, 2021, the Company identified immaterial errors in its historical financial statements. The errors resulted in understatement of goodwill, provision for income taxes, and deferred tax liability and overstatement of prepaid expenses and other current assets, accrued expenses and other current liabilities, and selling, general and administrative expenses. The Company evaluated the effect of these errors on prior periods under the guidance of SEC Staff Accounting Bulletin (“SAB”) No. 99 - Materiality, and determined the amounts were not material to any previously-issued financial statements. The Company also evaluated the effect of correcting these errors through a cumulative adjustment to the condensed consolidated financial statements and concluded, based on the guidance within SAB No. 108 - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, it was appropriate to correct these errors out of period during the quarter ended September 30, 2021.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption in the financial and capital markets, which could continue to negatively impact the Company’s customers’ access to working capital necessary to fund their operations, resulting in lower revenue for the Company. The COVID-19 pandemic and the resulting economic conditions and government shut down orders resulted in a decrease in total employment and hiring on a global level. The Company’s financial results and prospects are impacted by the number of hires and the total level of employment. The Company’s results for the year ended December 31, 2020 were negatively impacted by the temporary drop in hiring and the associated pre-employment background screen demand, which peaked during the second quarter of 2020. The temporary drop in order volume negatively impacted total revenues, net income and cash flows from operations during 2020. While the peak of the pandemic impact on the Company occurred during April and May of 2020, the Company began to see a steady recovery beginning in June 2020, which continued throughout the year and into 2021.
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